Essentially, Cisco is looking to leverage its strong services business, which grew 12% with more cloud-based purchases. The question is, will it be enough to offset its lagging hardware business? This is the question that F5 is asking today. Then again, or more importantly, efforts to grow hardware revenue may not even matter.
Once enterprises start migrating fully into the cloud, software will become "the new hardware." Cisco has understood this for quite some time. And it seems that F5 is beginning to realize that in order to effectively compete, it needs to also deleverage itself from hardware.
In the meantime, F5 does not have to compete with Cisco, which has exited the ADC market altogether. Then again, what does that say about what Cisco thinks of the nature of the industry? Experts are concerned that the market is saturated. It seems F5 is beginning to agree.
However, despite the lackluster performance in product revenue, the company made each sale count. Gross margin continue to improve - advancing almost 1% year over year and grew sequentially by forty basis points. This means that management continues to make the best out of a tough situation. From that standpoint, the company deserves a little more time to fix its issues. But it doesn't make the stock any more attractive.
At the time of publication, the author held no position in any of the stocks mentioned
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.